U.S. patent application number 14/022911 was filed with the patent office on 2015-03-12 for boundary constraint-based settlement in spread markets.
This patent application is currently assigned to Chicago Mercantile Exchange Inc.. The applicant listed for this patent is Chicago Mercantile Exchange Inc.. Invention is credited to Alex Behrens, David Bixby.
Application Number | 20150073962 14/022911 |
Document ID | / |
Family ID | 52626502 |
Filed Date | 2015-03-12 |
United States Patent
Application |
20150073962 |
Kind Code |
A1 |
Bixby; David ; et
al. |
March 12, 2015 |
Boundary Constraint-Based Settlement in Spread Markets
Abstract
A computer implemented method determines a settlement price for
a constituent contract of a plurality of spread instruments. The
method includes obtaining market data indicative of bid-offer
values for the plurality of spread instruments, generating
synthetic market data for the constituent contract based on the
bid-offer values and based on a respective settlement price for an
active contract of each spread instrument of the plurality of
spread instruments, determining boundary constraints on the
settlement price for the constituent contract based on the
synthetic market data, and computing the settlement price for the
constituent contract based on the boundary constraints.
Inventors: |
Bixby; David; (Arlington
Heights, IL) ; Behrens; Alex; (Roselle, IL) |
|
Applicant: |
Name |
City |
State |
Country |
Type |
Chicago Mercantile Exchange Inc. |
Chicago |
IL |
US |
|
|
Assignee: |
Chicago Mercantile Exchange
Inc.
Chicago
IL
|
Family ID: |
52626502 |
Appl. No.: |
14/022911 |
Filed: |
September 10, 2013 |
Current U.S.
Class: |
705/37 |
Current CPC
Class: |
G06Q 40/04 20130101 |
Class at
Publication: |
705/37 |
International
Class: |
G06Q 40/04 20120101
G06Q040/04 |
Claims
1. A computer implemented method for determining a settlement price
for a constituent contract of a plurality of spread instruments,
the plurality of spread instruments having the constituent contract
in common, the computer implemented method comprising: obtaining
market data indicative of bid-offer values for the plurality of
spread instruments; generating, by a processor, synthetic market
data for the constituent contract based on the bid-offer values and
based on a respective settlement price for an active contract of
each spread instrument of the plurality of spread instruments;
determining boundary constraints on the settlement price for the
constituent contract based on the synthetic market data; and
computing, by the processor, the settlement price for the
constituent contract based on the boundary constraints.
2. The computer implemented method of claim 1 wherein generating
the synthetic market comprises subtracting the bid-offer values
from the respective settlement price for the active contract.
3. The computer implemented method of claim 1 wherein determining
the boundary constraints comprises: determining a highest lower
bound of the settlement price for the constituent contract based on
the synthetic market data; and determining a lowest upper bound of
the settlement price for the constituent contract based on the
synthetic market data.
4. The computer implemented method of claim 3 wherein computing the
settlement price for the constituent contract comprises calculating
an average of the highest lower bound and the lowest upper bound to
compute the settlement price for the constituent contract.
5. The computer implemented method of claim 3 wherein, if the
highest lower bound and the lowest upper bound cross, determining
the boundary constraints comprises: of the highest lower bound and
the lowest upper bound, discarding the boundary constraint
associated with a wider market based on the bid-offer data; and
performing an iteration of determining the highest lower bound and
determining the lowest upper bound.
6. The computer implemented method of claim 5 wherein, if all of
the boundary constraints are discarded, computing the settlement
price for the constituent month contract further comprises
calculating the settlement price for the constituent contract based
on a metric other than the bid-offer values.
7. The computer implemented method of claim 6 wherein the metric
comprises trade data associated with another contract.
8. The computer implemented method of claim 1, further comprising
determining whether to use the market data indicative of the
bid-offer values for the plurality of spread instruments or whether
to use trade data indicative of trades involving the constituent
contract or another contract.
9. The computer implemented method of claim 1 wherein the synthetic
market data comprises synthetic bid-offer values for the
constituent contract for each spread instrument of the plurality of
spread instruments.
10. The computer implemented method of claim 1 wherein: the active
contract is a lead month contract; and the constituent contract is
a deferred month contract.
11. A system for determining a settlement price for a constituent
contract of a plurality of spread instruments, the plurality of
spread instruments having the constituent contract in common, the
system comprising a processor and a memory coupled with the
processor, the system further comprising: first logic stored in the
memory and executable by the processor to obtain market data
indicative of bid-offer values for the plurality of spread
instruments; second logic stored in the memory and executable by
the processor to generate synthetic market data for the constituent
contract based on the bid-offer values and based on a respective
settlement price for an active contract of each spread instrument
of the plurality of spread instruments; third logic stored in the
memory and executable by the processor to determine boundary
constraints on the settlement price for the constituent contract
based on the synthetic market data; and fourth logic stored in the
memory and executable by the processor to compute the settlement
price for the constituent contract based on the boundary
constraints.
12. The system of claim 11 wherein the second logic is further
executable by the processor to subtract the bid-offer values from
the respective settlement price for the active contract.
13. The system of claim 11 wherein the third logic is further
executable by the processor to: determine a highest lower bound of
the settlement price for the constituent contract based on the
synthetic market data; and determine a lowest upper bound of the
settlement price for the constituent contract based on the
synthetic market data.
14. The system of claim 13 wherein the fourth logic is further
executable by the processor to calculate an average of the highest
lower bound and the lowest upper bound to compute the settlement
price for the constituent contract.
15. The system of claim 13 wherein, if the highest lower bound and
the lowest upper bound cross, the third logic is further executable
by the processor to: of the highest lower bound and the lowest
upper bound, discard the boundary constraint associated with a
wider market based on the bid-offer data; and perform an iteration
of determining the highest lower bound and determining the lowest
upper bound.
16. The system of claim 15 wherein, if all of the synthetic market
data is discarded for one of the boundary constraints, the fourth
logic is further executable by the processor to calculate the
settlement price for the constituent contract based on a metric
other than the bid-offer values.
17. The system of claim 16 wherein the metric comprises trade data
associated with another contract.
18. The system of claim 11, further comprising fifth logic stored
in the memory and executable by the processor to determine whether
to determine the settlement price of the constituent contract based
on the market data indicative of the bid-offer values for the
plurality of spread instruments or based on trade data indicative
of trades involving the constituent contract or another month
contract.
19. The system of claim 11 wherein the synthetic market data
comprises synthetic bid-offer values for the constituent contract
for each spread instrument of the plurality of spread
instruments.
20. A system for determining a settlement price for a constituent
contract of a plurality of spread instruments, the plurality of
spread instruments having the constituent contract in common, the
system comprising: means for obtaining market data indicative of
bid-offer values for the plurality of spread instruments; means for
generating synthetic market data for the constituent contract based
on the bid-offer values and based on a respective settlement price
for an active contract of each spread instrument of the plurality
of spread instruments; means for determining boundary constraints
on the settlement price for the constituent contract based on the
synthetic market data; and means for computing the settlement price
for the constituent contract based on the boundary constraints.
21. The system of claim 20, wherein means for determining the
boundary constraints comprises: means for determining a highest
lower bound of the settlement price for the constituent contract
based on the synthetic market data; and means for determining a
lowest upper bound of the settlement price for the constituent
contract based on the synthetic market data.
Description
TECHNICAL FIELD
[0001] The following disclosure relates to software, systems and
methods for determining margin requirements in a commodities
exchange, derivatives exchange or similar business.
BACKGROUND
[0002] A financial instrument trading system, such as a futures
exchange, referred to herein also as an "Exchange", such as the
Chicago Mercantile Exchange Inc. (CME), provides a contract market
where financial instruments, for example futures and options on
futures, are traded. Futures is a term used to designate all
contracts for the purchase or sale of financial instruments or
physical commodities for future delivery or cash settlement on a
commodity futures exchange. A futures contract is a legally binding
agreement to buy or sell a commodity, such as a grain commodity, at
a specified price at a predetermined future time. An option is the
right, but not the obligation, to sell or buy the underlying
instrument (in this case, a futures contract) at a specified price
within a specified time. The commodity to be delivered in
fulfillment of the contract, or alternatively the commodity for
which the cash market price shall determine the final settlement
price of the futures contract, is known as the contract's
underlying reference or "underlier." The terms and conditions of
each futures contract are standardized as to the specification of
the contract's underlying reference commodity, the quality of such
commodity, quantity, delivery date, and means of contract
settlement. Cash Settlement is a method of settling a futures
contract whereby the parties effect final settlement when the
contract expires by paying/receiving the loss/gain related to the
contract in cash, rather than by effecting physical sale and
purchase of the underlying reference commodity at a price
determined by the futures contract, price. Options and futures may
be based on more abstract market indicators, such as stock indices,
interest rates, futures contracts and other derivatives.
[0003] A spread instrument involves the simultaneous purchase of
one security and sale of a related security, called legs, as a
unit. The legs of a spread instrument are usually options or
futures contracts, but other securities are sometimes used. Trades
in spread instruments are executed to yield an overall net position
whose value, called the spread, depends on the difference between
the prices of the legs. Spread instruments are traded in an attempt
to profit from the widening or narrowing of the spread, rather than
from movement in the prices of the legs directly. Spread
instruments are either "bought" or "sold" depending on whether the
trade will profit from the widening or narrowing of the spread,
respectively. An Exchange often supports trading of common spreads
as a unit rather than as individual legs, thus ensuring
simultaneous execution and eliminating the execution risk of one
leg executing but the other failing.
[0004] One example of a spread instrument is a calendar spread
instrument. The legs of a calendar spread instrument differ in
delivery date of the underlier. The leg with the earliest occurring
delivery date is often referred to as the lead month contract. A
leg with a later occurring delivery date is often referred to as a
deferred month contract.
[0005] Typically, the Exchange provides for a centralized "clearing
house" through which all trades made must be confirmed, matched,
and settled each day until offset or delivered. The clearing house
is an adjunct to the Exchange, and may be an operating division of
the Exchange, which is responsible for settling trading accounts,
clearing trades, collecting and maintaining performance bond funds,
regulating delivery, and reporting trading data. The essential role
of the clearing house is to mitigate credit risk. Clearing is the
procedure through which the Clearing House becomes buyer to each
seller of a futures contract, and seller to each buyer, also
referred to as a novation, and assumes responsibility for
protecting buyers and sellers from financial loss due to breach of
contract, by assuring performance on each contract. A clearing
member is a firm qualified to clear trades through the Clearing
House.
[0006] The Clearing House of an Exchange clears, settles and
guarantees all matched transactions in contracts occurring through
the facilities of the Exchange. In addition, the Clearing House
establishes and monitors financial requirements for clearing
members and conveys certain clearing privileges in conjunction with
the relevant exchange markets.
[0007] The Clearing House establishes clearing level performance
bonds (margins) for all products of the Exchange and establishes
minimum performance bond requirements for customers of such
products. A performance bond, also referred to as a margin
requirement, corresponds with the funds that must be deposited by a
customer with his or her broker, by a broker with a clearing member
or by a clearing member with the Clearing House, for the purpose of
insuring the broker or Clearing House against loss on open futures
or options contracts. This is not a part payment on a purchase. The
performance bond helps to ensure the financial integrity of
brokers, clearing members and the Exchange as a whole. The
Performance Bond to Clearing House refers to the minimum dollar
deposit, which is required by the Clearing House from clearing
members in accordance with their positions. Maintenance, or
maintenance margin, refers to a sum, usually smaller than the
initial performance bond, which must remain on deposit in the
customer's account for any position at all times. The initial
margin is the total amount of margin per contract required by the
broker when a futures position is opened. A drop in funds below
this level requires a deposit back to the initial margin levels,
i.e. a performance bond call. If a customer's equity in any futures
position drops to or under the maintenance level because of adverse
price action, the broker must issue a performance bond/margin call
to restore the customer's equity. A performance bond call, also
referred to as a margin call, is a demand for additional funds to
bring the customer's account back up to the initial performance
bond level whenever adverse price movements cause the account to go
below the maintenance.
[0008] The Exchange derives its financial stability in large part
by removing debt obligations among market participants as they
occur. This is accomplished by determining a settlement price at
the close of the market each day for each contract and marking all
open positions to that price, referred to as "mark to market."
Every contract is debited or credited based on that trading
session's gains or losses. As prices move for or against a
position, funds flow into and out of the trading account. In the
case of the CME, each business day by 6:40 a.m. Chicago time, based
on the mark-to-the-market of all open positions to the previous
trading day's settlement price, the Clearing House pays to or
collects cash from each clearing member. This cash flow, known as
settlement variation, is performed by CME's settlement banks based
on instructions issued by the Clearing House. All payments to and
collections from clearing members are made in "same-day" funds. In
addition to the 6:40 a.m. settlement, a daily intra-day mark-to-the
market of all open positions, including trades executed during the
overnight GLOBEX.RTM., the CME's electronic trading systems,
trading session and the current day's trades matched before 11:15
a.m., is performed using current prices. The resulting cash
payments are made intra-day for same day value. In times of extreme
price volatility, the Clearing House has the authority to perform
additional intra-day mark-to-the-market calculations on open
positions and to call for immediate payment of settlement
variation. Settlement variation payments through the Clearing House
average $1.4 billion per day and have reached a peak of $6.4
billion. CME's mark-to-the-market settlement system stands in
direct contrast to the settlement systems implemented by many other
financial markets, including the interbank, Treasury securities,
over-the-counter foreign exchange and debt, options, and equities
markets, where participants regularly assume credit exposure to
each other. In those markets, the failure of one participant can
have a ripple effect on the solvency of the other participants.
Conversely, CME's mark-to-the-market system does not allow losses
to accumulate over time or allow a market participant the
opportunity to defer losses associated with market positions.
[0009] In order to minimize risk to the Exchange while minimizing
the burden on members, it is desirable to approximate the requisite
performance bond or margin requirement as closely as possible to
the actual positions of the account at any given time. With some
spread instruments, the market is sufficiently inactive during or
at the end of the trading day. Very little, if any, trades may
occur during a given day. In such cases, it may be difficult to
determine daily settlement prices for purposes of accurately
estimating performance bond requirements.
BRIEF DESCRIPTION OF THE DRAWINGS
[0010] FIG. 1 depicts a block diagram of an exemplary system for
trading futures contracts, spread instruments, and/or other
financial products according to the disclosed embodiments.
[0011] FIG. 2 is a block diagram of an exemplary system for
determining a settlement price for a deferred month or other
constituent contract of a set of spread instruments in accordance
with one embodiment.
[0012] FIG. 3 is a flow chart diagram of an exemplary method for
determining a settlement price for a deferred month or other
constituent contract of a set of spread instruments in accordance
with one embodiment.
[0013] FIG. 4 shows an illustrative embodiment of a general
computer system for use with the system of FIG. 1 and/or the system
of FIG. 2 and/or for implementing the method of FIG. 3.
[0014] FIG. 5A is a table of exemplary trade and market data for a
set of spread instruments to present an example of a prior art
procedure for determining a deferred month settlement price in
which a resulting spread instrument value falls outside of a
bid-offer range.
[0015] FIG. 5B is a table of exemplary trade and market data for a
set of spread instruments to present an example of a boundary
constraint-based procedure for determining a deferred month
contract settlement price in accordance with one embodiment.
[0016] FIGS. 6A and 6B are tables of exemplary trade and market
data for a set of spread instruments to present an example of a
boundary constraint adjustment of the boundary constraint-based
procedure in accordance with one embodiment.
DETAILED DESCRIPTION
[0017] The disclosed embodiments relate to determining settlement
prices for constituent contracts of spread instruments. Synthetic
market data is generated for a constituent contract of a set of
spread instruments. The synthetic market data is generated based on
market data indicative of bid-offer values (i.e., bid-ask values)
for the set of spread instruments. The synthetic market data is
used to determine boundary constraints on the settlement price for
the constituent contract. The best (i.e., highest) bid in the
synthetic market corresponds with a lower boundary constraint for
(or bound on) the settlement price, while the best (i.e., lowest)
offer in the synthetic market corresponds with an upper boundary
constraint. The settlement price for the constituent contract may
then be determined by computing an average or midpoint of the lower
and upper boundary constraints.
[0018] The synthetic market data may include a set of synthetic
bids and a set of synthetic offers for the constituent contract.
Each set contains a bid (or offer) determined in accordance with a
respective one of the set of spread instruments. In some cases, the
sets of synthetic bids and offers may include market data
indicative of bids and offers from the market for the constituent
contract itself, i.e., the outright market.
[0019] The disclosed embodiments may be useful in avoiding an issue
presented by settlement price calculations based on a technique
that calculates a median of the midpoints of the bid-offer range,
or bid-ask market, for the various spread instruments. The approach
based on the median of the midpoints may result in settlement
values for a deferred month contract that lead to spread instrument
values outside of the bid-offer range for the spread instrument. An
example is described below in connection with FIG. 5A. The
situation may occur when illiquid, inactive, or otherwise wide
markets provide data that distorts the valuation of the deferred
month contract. The inclusion of implied prices from such wider
spread markets into the median calculation effectively reduces the
contribution from other, more reliable, or otherwise tighter
markets.
[0020] In some embodiments, the settlement price determination
procedure may be configured to address the presence of a wide
market through an adjustment during the boundary constraint
determination. A wide market may lead to the boundary constraints
crossing. In that event, then the boundary constraint associated
with the wider market is discarded. The next best synthetic bid (or
offer) of the synthetic market is then selected for use in the
settlement price determination. The adjustment may be iterated
until the boundary constraints no longer cross.
[0021] Use of the disclosed embodiments for settlement price
determination may result in settlement prices that more accurately
or closely reflect all market (e.g., bid/ask) activity for the
spread contracts, while minimizing or reducing the effects of lower
liquidity spread markets. Tighter markets may accordingly be
rewarded at the expense of those markets with lower liquidity. This
result may be useful because tighter markets may correspond with
those considered to be more important or valuable to the market
participants.
[0022] Although described below in connection with examples
involving calendar spread instruments, the methods described herein
are well suited for determining settlement prices for a variety of
spread instruments, now available or hereafter developed. For
example, the disclosed embodiments may be useful in connection with
option spreads. While the disclosed embodiments are discussed in
relation to grain futures, the disclosed embodiments may be
applicable to contracts for other types of underlier commodity,
equity, option, or futures trading system or market now available
or later developed. The disclosed embodiments are also not limited
to intra-market spread instruments, and accordingly may also be
used in connection with inter-market spread instruments for
contracts associated with different commodities.
[0023] While the disclosed embodiments may be described in
reference to the CME, it will be appreciated that these embodiments
are applicable to any Exchange. Such other Exchanges may include a
clearing house that, like the CME Clearing House, clears, settles
and guarantees all matched transactions in contracts of the
Exchange occurring through its facilities. In addition, such
clearing houses establish and monitor financial requirements for
clearing members and conveys certain clearing privileges in
conjunction with the relevant exchange markets.
[0024] The disclosed embodiments are also not limited to uses by a
clearing house or Exchange for purposes of enforcing a performance
bond or margin requirement. For example, a market participant may
use the disclosed embodiments in a simulation or other analysis of
a portfolio. In such cases, the settlement price may be useful as
an indication of a value at risk and/or cash flow obligation rather
than a performance bond. The disclosed embodiments may also be used
by market participants or other entities to forecast or predict the
effects of a prospective position on the margin requirement of the
market participant.
[0025] The methods and systems described herein may be integrated
or otherwise combined with various risk management methods and
systems, such as the risk management methods and systems described
in U.S. Patent Publication No. 2006/0265296 ("System and Method for
Activity Based Margining"), the entire disclosure of which is
incorporated by reference. For example, the methods and systems
described herein may be configured as a component or module of the
risk management systems described in the above-referenced patent
publication. Alternatively or additionally, the disclosed methods
may generate data to be provided to the systems described in the
above-referenced patent publication. For example, the settlement
prices determined by the disclosed embodiments may be incorporated
into margin requirement(s) determined by the risk management method
or system.
[0026] In one embodiment, the disclosed methods and systems are
integrated or otherwise combined with the risk management system
implemented by CME called Standard Portfolio Analysis of Risk.TM.
(SPAM.RTM.). The SPAN system bases performance bond requirements on
the overall risk of the portfolios using parameters as determined
by CME's Board of Directors, and thus represents a significant
improvement over other performance bond systems, most notably those
that are "strategy-based" or "delta-based." Further details
regarding SPAN are set forth in the above-referenced patent
publication.
[0027] The embodiments may be described in terms of a distributed
computing system. The particular examples identify a specific set
of components useful in a futures and options exchange. However,
many of the components and inventive features are readily adapted
to other electronic trading environments. The specific examples
described herein may teach specific protocols and/or interfaces,
although it should be understood that the principles involved may
be extended to, or applied in, other protocols and interfaces.
[0028] It will be appreciated that the plurality of entities
utilizing or involved with the disclosed embodiments, e.g. the
market participants, may be referred to by other nomenclature
reflecting the role that the particular entity is performing with
respect to the disclosed embodiments and that a given entity may
perform more than one role depending upon the implementation and
the nature of the particular transaction being undertaken, as well
as the entity's contractual and/or legal relationship with another
market participant and/or the Exchange.
[0029] With reference now to the drawing figures, an exemplary
trading network environment for implementing trading systems and
methods is shown in FIG. 1. An exchange computer system 100
receives orders and transmits market data related to orders and
trades to users, such as via wide area network 126 and/or local
area network 124 and computer devices 114, 116, 118, 120 and 122,
as described below, coupled with the exchange computer system
100.
[0030] Herein, the phrase "coupled with" is defined to mean
directly connected to or indirectly connected through one or more
intermediate components. Such intermediate components may include
both hardware and software based components. Further, to clarify
the use in the pending claims and to hereby provide notice to the
public, the phrases "at least one of <A>, <B>, . . .
and <N>" or "at least one of <A>, <B>, . . .
<N>, or combinations thereof" are defined by the Applicant in
the broadest sense, superseding any other implied definitions
hereinbefore or hereinafter unless expressly asserted by the
Applicant to the contrary, to mean one or more elements selected
from the group comprising A, B, . . . and N, that is to say, any
combination of one or more of the elements A, B, . . . or N
including any one element alone or in combination with one or more
of the other elements which may also include, in combination,
additional elements not listed.
[0031] The exchange computer system 100 may be implemented with one
or more mainframe, desktop or other computers, such as the computer
400 described below in connection with FIG. 4. A user database 102
may be provided which includes information identifying traders and
other users of exchange computer system 100, such as account
numbers or identifiers, user names and passwords. An account data
module 104 may be provided which may process account information
that may be used during trades.
[0032] A match engine module 106 may be included to match bid and
offer prices and may be implemented with software that executes one
or more algorithms for matching bids and offers. The match engine
module 106 may be in communication with one or more of the local
area network 124, the wide area network 126, or other elements of
the exchange computer system 100 to receive data indicative of the
orders from the market participants.
[0033] A trade database 108 may be included to store information
identifying trades and descriptions of trades. In particular, a
trade database may store information identifying the time that a
trade took place and the contract price. An order book module 110
may be included to compute or otherwise determine current bid and
offer prices. A market data module 112 may be included to collect
market data and prepare the data for transmission to users. A risk
management module 134 may be included to compute and determine a
user's risk utilization in relation to the user's defined risk
thresholds. The risk management module 134 may also be configured
to determine risk assessments or exposure levels in connection with
positions held by a market participant.
[0034] The risk management module 134 may be configured to
administer, manage or maintain one or more margining mechanisms
implemented by the exchange computer system 100. Such
administration, management or maintenance may include managing a
number of database records reflective of margin accounts of the
market participants. In some embodiments, the risk management
module 134 implements one or more aspects of the disclosed
embodiments, including, for instance, PCA-based margining in
connection with IRS portfolios, as described below.
[0035] An order processing module 136 may be included to decompose
delta-based, spread instrument, bulk and other types of composite
orders for processing by the order book module 110 and/or the match
engine module 106. The order processing module 136 may also be used
to implement one or more procedures related to clearing an
order.
[0036] In the example of FIG. 1, the exchange computer system 100
also includes a settlement module 140 (or settlement processor or
other payment processor) to provide one or more functions related
to settling or otherwise administering transactions cleared by the
Exchange. Settlement-related functions need not be limited to
actions or events occurring at the end of a contract term. For
instance, in some embodiments, settlement-related functions may
include or involve daily or other MTM settlements for margining
purposes. In some cases, the settlement module 140 may be
configured to communicate with the trade database 108 (or the
memory(ies) on which the trade database 108 is stored) and/or to
determine a payment amount based on a spot price, the price of the
futures contract or other financial instrument, or other price
data, at various times. The determination may be made at one or
more points in time during the term of the financial instrument in
connection with a margining mechanism. For example, the settlement
module 140 may be used to determine a MTM amount on a daily basis
during the term of the financial instrument. Such determinations
may also be made on a settlement date for the financial instrument
for the purposes of final settlement.
[0037] In some embodiments, the settlement module 140 may be
integrated to any desired extent with one or more of the other
modules or processors of the exchange computer system 100. For
example, the settlement module 140 and the risk management module
134 may be integrated to any desired extent. In some cases, one or
more margining procedures or other aspects of the margining
mechanism(s) may be implemented by the settlement module 140.
[0038] The exchange computer system 100 may include one or more
additional modules or processors, including, for instance, a volume
control module configured to, among other things, control the rate
of acceptance of mass quote messages. It will be appreciated that
concurrent processing limits may be defined by or imposed
separately or in combination, as was described above, on one or
more of the trading system components, including the user database
102, the account data module 104, the match engine module 106, the
trade database 108, the order book module 110, the market data
module 112, the risk management module 134, the order processing
module 136, the settlement module 140, or other component of the
exchange computer system 100.
[0039] The trading network environment shown in FIG. 1 includes
exemplary computer devices 114, 116, 118, 120 and 122, which depict
different exemplary methods or media by which a computer device may
be coupled with the exchange computer system 100 or by which a user
may communicate, e.g. send and receive trade or other information
therewith. It will be appreciated that the types of computer
devices deployed by traders and the methods and media by which they
communicate with the exchange computer system 100 is implementation
dependent and may vary and that not all of the depicted computer
devices and/or means/media of communication may be used and that
other computer devices and/or means/media of communications, now
available or later developed may be used. Each computer device,
which may include a computer 400 described in more detail below
with respect to FIG. 4, may include a central processor that
controls the overall operation of the computer and a system bus
that connects the central processor to one or more conventional
components, such as a network card or modem. Each computer device
may also include a variety of interface units and drives for
reading and writing data or files and communicating with other
computer devices and with the exchange computer system 100.
Depending on the type of computer device, a user can interact with
the computer with a keyboard, pointing device, microphone, pen
device or other input device now available or later developed.
[0040] An exemplary computer device 114 is shown directly connected
to exchange computer system 100, such as via a T1 line, a common
local area network (LAN) or other wired and/or wireless medium for
connecting computer devices, such as the network 420 shown in FIG.
4 and described below with respect thereto. The exemplary computer
device 114 is further shown connected to a radio 132. The user of
radio 132, which may include a cellular telephone, smart phone, or
other wireless proprietary and/or non-proprietary device, may be a
trader or exchange employee. The radio user may transmit orders or
other information to the exemplary computer device 114 or a user
thereof. The user of the exemplary computer device 114, or the
exemplary computer device 114 alone and/or autonomously, may then
transmit the trade or other information to the exchange computer
system 100.
[0041] Exemplary computer devices 116 and 118 are coupled with a
local area network ("LAN") 124 which may be configured in one or
more of the well-known LAN topologies, e.g. star, daisy chain,
etc., and may use a variety of different protocols, such as
Ethernet, TCP/IP, etc. The exemplary computer devices 116 and 118
may communicate with each other and with other computer and other
devices which are coupled with the LAN 124. Computer and other
devices may be coupled with the LAN 124 via twisted pair wires,
coaxial cable, fiber optics or other wired or wireless media. As
shown in FIG. 1, an exemplary wireless personal digital assistant
device ("PDA") 122, such as a mobile telephone, tablet based
compute device, or other wireless device, may communicate with the
LAN 124 and/or the Internet 126 via radio waves, such as via WiFi,
Bluetooth and/or a cellular telephone based data communications
protocol. PDA 122 may also communicate with exchange computer
system 100 via a conventional wireless hub 128.
[0042] FIG. 1 also shows the LAN 124 coupled with a wide area
network ("WAN") 126 which may be comprised of one or more public or
private wired or wireless networks. In one embodiment, the WAN 126
includes the Internet 126. The LAN 124 may include a router to
connect LAN 124 to the Internet 126. Exemplary computer device 120
is shown coupled directly to the Internet 126, such as via a modem,
DSL line, satellite dish or any other device for connecting a
computer device to the Internet 126 via a service provider
therefore as is known. LAN 124 and/or WAN 126 may be the same as
the network 420 shown in FIG. 4 and described below with respect
thereto.
[0043] The operations of computer devices and systems shown in FIG.
1 may be controlled by computer-executable instructions stored on a
non-transitory computer-readable medium. For example, the exemplary
computer device 116 may include computer-executable instructions
for receiving order information from a user and transmitting that
order information to exchange computer system 100. In another
example, the exemplary computer device 118 may include
computer-executable instructions for receiving market data from
exchange computer system 100 and displaying that information to a
user.
[0044] Numerous additional servers, computers, handheld devices,
personal digital assistants, telephones and other devices may also
be connected to the exchange computer system 100. Moreover, the
topology shown in FIG. 1 is merely an example and that the
components shown in FIG. 1 may include other components not shown
and be connected by numerous alternative topologies.
[0045] As shown in FIG. 1, the settlement module 140 of the
exchange computer system 100 may implement one or more aspects of
the settlement price determination techniques of the disclosed
methods and systems, as will be described with reference to FIG. 2.
It will be appreciated the disclosed embodiments may be implemented
as a different or separate module of the exchange computer system
100, or a separate computer system coupled with the exchange
computer system 100 so as to have access to margin account record,
pricing, and/or other data. As described above, the disclosed
embodiments may be implemented as a centrally accessible system or
as a distributed system, e.g., where some of the disclosed
functions are performed by the computer systems of the market
participants.
[0046] As an intermediary, the Exchange 108 bears a certain amount
of risk in each transaction that takes place. To that end, risk
management mechanisms protect the Exchange 108 via the Clearing
House. The Clearing House establishes clearing level performance
bonds (margins) for all CME products and establishes minimum
performance bond requirements for customers of CME products. A
performance bond, also referred to as a margin, corresponds with
the funds that must be deposited by a customer with his or her
broker, by a broker with a clearing member or by a clearing member
with the Clearing House, for the purpose of insuring the broker or
Clearing House against loss on open futures or options contracts.
This is not a part payment on a purchase. The performance bond
helps to ensure the financial integrity of brokers, clearing
members and the Exchange as a whole. The Performance Bond to
Clearing House refers to the minimum dollar deposit required by the
Clearing House from clearing members in accordance with their
positions. Maintenance, or maintenance margin, refers to a sum,
usually smaller than the initial performance bond, which must
remain on deposit in the customer's account for any position at all
times. The initial margin is the total amount of margin per
contract required by the broker when a futures position is opened.
A drop in funds below this level requires a deposit back to the
initial margin levels, i.e. a performance bond call. If a
customer's equity in any futures position drops to or under the
maintenance level because of adverse price action, the broker must
issue a performance bond/margin call to restore the customer's
equity. A performance bond call, also referred to as a margin call,
is a demand for additional funds to bring the customer's account
back up to the initial performance bond level whenever adverse
price movements cause the account to go below the maintenance.
[0047] As described below in connection with the exemplary
embodiments of FIGS. 2 and 3, one or more of the modules of the
Exchange computer system 100 may be configured to determine
settlement prices for constituent contracts, such as deferred month
contracts, of spread instruments. In some cases, the outright
market for the deferred month or other constituent contract may not
be sufficiently active to provide market data (e.g., bid-offer
data) and/or trade data. Spread instruments involving such
contracts may nonetheless be made available by the Exchange. The
market data from the spread instruments may then be used to
determine a settlement price for the constituent contract. The
settlement price may be determined through a boundary
constraint-based technique based on the market data (e.g.,
bid-offer data) for the spread instrument, as described herein.
[0048] The boundary constraint-based procedure of the disclosed
embodiments may be used in connection with spread instruments for
which there is no or insufficient trade data (e.g., average trading
price data) available. In cases where there is such price data
available, the settlement price for the deferred month contract may
be calculated as the difference between the settlement price of the
lead month contract and the average trading price data.
[0049] The boundary constraint-based technique may use the
bid-offer data for each spread instrument to generate a synthetic
market for the constituent contract. The bid of the spread
instrument provides a lower bound on the price of the constituent
contract, while the offer (or ask) provides an upper bound. Because
multiple spread instruments include the constituent contract, a set
of lower bounds and a set of upper bounds are provided. Once the
two sets of bounds are determined, the boundary constraints on the
settlement price are determined as the best (highest) bound from
the set of lower bounds and the best (lowest) bound from the set of
upper bounds. The boundary constraints may then be averaged to
calculate a settlement price. The resulting settlement price will
not be outside of any of the posted bid/ask markets for the spread
instruments, provided that the lower bound and upper bound do not
cross. If the bounds cross, the boundary constraint associated with
the wider spread market is discarded, and the boundary constraint
determination is implemented again until the bounds no longer
cross.
[0050] The boundary constraint-based technique of the disclosed
embodiments may be based on market data (e.g., bid-offer or bid-ask
market data) for all of the spread instruments having the
constituent contract. The synthetic bid/ask market for the
constituent contract to be valued may incorporate bid/ask
information from any number of spread markets.
[0051] The boundary constraint-based technique of the disclosed
embodiments may also include other market data. For instance, in
some embodiments, market data for the contract to be settled may be
incorporated into the boundary constraint determination. In
calendar spread instrument examples, bid-offer data for a deferred
month contract may be obtained and incorporated into the two sets
of the synthetic market used to determine the lowest upper bound
and the highest lower bound. For example, the best offer on the
order book for the deferred month contract may be used as one of
the candidates for the lowest upper bound. The best bid on the
order book may be used as one of the candidates for the highest
lower bound.
[0052] The boundary constraint-based technique of the disclosed
embodiments may include or be combined with other settlement price
determination techniques. For example, certain markets or market
conditions may warrant the use of a technique other than the
boundary constraint-based technique. In some embodiments, a
settlement price for a lead month or active contract of a spread
instrument may be calculated using a procedure that involves
computing a volume weighted average price (VWAP) of trades for that
contract. VWAP and other trade data-based techniques may also be
used to settle contracts other than the lead month contract (or
active contract) of the spread instrument. In some embodiments, an
option to use trade data in, e.g., a VWAP computation, is provided
as an alternative to the boundary constraint-based technique. For
example, if sufficient trade data is available in the outright
market for the contract to be settled, the settlement price may be
determined based on such trade data. Alternatively or additionally,
if the option to use the trade data is not initially selected, the
settlement price may nonetheless be determined based on such trade
data if the boundary constraint-based technique is not successful.
This may occur if all of the spread instrument markets are open
ended, as described below. If trade data for the contract to be
settled is insufficient or unavailable, trade data for another
contract (e.g., a preceding month contract) may be used to imply a
settlement price for the constituent contract.
[0053] In some embodiments, a pre-defined width threshold may also
be used to determine which technique and/or data is used to
determine a settlement price. For example, a pre-defined width
threshold may be used to determine whether the market data in the
outright market for the contract to be settled is used.
[0054] The settlement price determination techniques of the
disclosed embodiments may be iteratively implemented to cover
calendar month spread instruments having different deferred month
contracts. The disclosed embodiments are first applied to a number
of spread instruments having a first deferred month contract in
common. The settlement price determined for the first deferred
month contract may then be used to settle deferred month contracts
of spread instruments having the first deferred month contract as
the lead month contract. The boundary constraint-based procedure
may thus be iteratively performed to address a number of different
spread instruments having different lead month contracts.
[0055] FIG. 2 depicts a block diagram of a system 200 operative to
determine a settlement price for a constituent contract of a
plurality of spread instruments. In some embodiments, the system
200 may correspond with, or implement, the settlement module 140
and/or other module of the exchange computer system 100 (e.g., the
risk management module 134). The system 200 may thus be implemented
as part of the exchange computer system 100 described above.
[0056] One or more of the above-described modules of the Exchange
computer system 100 may be used to gather or obtain data to support
the settlement price determination, as well as a subsequent margin
requirement determination by the system 200. For example, the order
book module 110 and/or the market data module 112 may be used to
receive, access, or otherwise obtain market data, such as bid-offer
values of orders currently on the order books. The trade database
108 may be used to receive, access, or otherwise obtain trade data
indicative of the prices and volumes of trades that were recently
executed in a number of markets. In some cases, transaction data
(and/or bid/ask data) may be gathered or obtained from open outcry
pits and/or other sources and incorporated into the trade and
market data from the electronic trading system(s).
[0057] The system 200 includes a processor 202 and a memory 204
coupled therewith which may be implemented as a processor 402 and
memory 404 as described below with respect to FIG. 4. The system
200 further includes first logic 206 stored in the memory 204 and
executable by the processor 202 to cause the processor 202 to
obtain market data indicative of bid-offer values for the plurality
of spread instruments. The market data may include data indicative
of a best bid and a best offer on the order book for each spread
instrument. In some cases, the spread instruments are calendar
spread instruments having a lead month contract and a deferred
month contract as the constituent contract to be settled. Market
data for other types of spread instruments and, thus, other types
of constituent contracts, may be obtained. The system 200 is not
limited to settling constituent contracts of calendar spread
instruments.
[0058] The first logic 206 may also be configured to obtain trade
data indicative of recent trade activity in each spread instrument
market. The trade data may include data indicative of price and
volume for recent trades. Further trade data may be obtained for
the markets of the constituent contracts. For example, trade data
may be obtained for an active contract, such as a lead month
contract, of each calendar spread instrument. The trade data may
also be obtained, if available, for the other constituent contract,
e.g., the deferred month contract, of the spread instrument. Such
trade data may be used to determine the manner in which the
constituent contract is to be settled. For example, if sufficient
trade data is available for the constituent contract itself, then
the trade data may be used to determine a settlement price. The
sufficiency of the trade data may turn on the volume, timing, price
information (e.g., relative to the current market data), and/or
other characteristic of the trade data.
[0059] In some embodiments, the market data obtained by the first
logic 206 includes market data for the market (e.g., the outright
market) for the constituent contract to be settled. Such market
data may be indicative of the best bid and the best offer for the
constituent contract itself.
[0060] The system 200 further includes second logic 208 stored in
the memory 204 and executable by the processor 202 to cause the
processor 202 to generate synthetic market data for the constituent
contract. The synthetic market data is generated based on the
bid-offer values for the spread instruments having the constituent
contract. The synthetic market data is also based on a respective
settlement price for an active contract of each spread instrument.
The second logic 208 may be configured to subtract the bid-offer
values of the spread instrument from the respective settlement
price for the lead month contract of the spread instrument. For
example, for a calendar month spread instrument having a lead month
contract trading at 584.50 and with bid and offer values of -14.5
and -12.5, respectively, then the synthetic market data for the
deferred month contract has a synthetic ask (or offer) of
584.5-(-14.5) or 599, and a synthetic bid of 584.5-(-12.5) or 597.
Such synthetic bid and offer values for the constituent contract
are determined for each spread instrument having the constituent
contract. The synthetic market data may thus include a set of
synthetic bid values and a set of synthetic offer values. Each set
includes an element for each spread instrument having the
constituent contract to be settled.
[0061] The system 200 further includes third logic 210 stored in
the memory 204 and executable by the processor 202 to cause the
processor 202 to determine boundary constraints on the settlement
price for the constituent contract based on the synthetic market
data. The sets of synthetic bid values and synthetic offer values
for the constituent contract may be evaluated to determine the
boundary constraints. The third logic 210 may be further executable
by the processor 202 to determine a highest lower bound of the
settlement price for the constituent contract based on the
synthetic market data, and determine a lowest upper bound of the
settlement price for the constituent contract based on the
synthetic market data. The highest lower bound may be determined by
selecting the highest synthetic bid value from the set of synthetic
bid values. The lowest upper bound may be determined by selecting
the lowest synthetic offer value from the set of synthetic offer
values.
[0062] The system 200 further includes fourth logic 212 stored in
the memory 204 and executable by the processor 202 to cause the
processor 202 to compute the settlement price for the constituent
contract based on the boundary constraints. The fourth logic 212 is
further executable by the processor 202 to calculate an average or
midpoint of the highest lower bound and the lowest upper bound to
determine the settlement price for the constituent contract. The
settlement price of the constituent contract may thus be the
midpoint of the boundary constraints provide as the output data of
the third logic 210. If the boundary constraints are equal to one
another, the constituent contract may settle at that value. The
fourth logic 212 may be configured to round up or down to a nearest
market value.
[0063] The boundary constraints on the settlement price may, and
often will, be based on the market data for different spread
instruments. As a result, the boundary constraints computed by the
third logic 210 may cross. The boundary constraints cross when the
highest lower bound is higher than the lowest upper bound. The
likelihood of the boundary constraints crossing increases as the
dislocation of the spread instrument markets increases.
[0064] Rather than allow the settlement price to be determined by
crossed boundary constraints, the third logic 210 may be configured
to implement an adjustment to the boundary constraints. If the
highest lower bound and the lowest upper bound cross, the third
logic 210 is further executable by the processor 202 to discard one
of the boundary constraints. Of the highest lower bound and the
lowest upper bound, the boundary constraint associated with a wider
market based on the bid-offer data is discarded. The third logic
210 is then executed again by the processor 202 to perform another
iteration of determining the highest lower bound and determining
the lowest upper bound. The adjustment and determination of the
boundary constraints are iterated until the boundary constraints no
longer cross.
[0065] In the embodiment of FIG. 2, the system 200 further includes
fifth logic 214 stored in the memory 204 and executable by the
processor 202 to cause the processor 202 to configure the manner in
which the settlement price is determined. The settlement procedure
may be configured to use the boundary constraint-based technique as
a default procedure and/or in certain circumstances. For example,
the fifth logic 214 may cause the processor 202 to evaluate the
trade data in one or more markets (e.g., the market of the contract
to be settled) to determine if sufficient trade data is available
to derive a settlement price therefrom (e.g., using a VWAP
technique).
[0066] The fifth logic 213 may additionally or alternatively be
executable by the processor 202 to cause the processor 202 to
reconfigure the settlement procedure in the event that the boundary
constraint-based technique is unsuccessful. For instance, the
technique may not be successful if all of the synthetic market data
is discarded for one of the boundary constraints. In some cases,
each element of the set of synthetic bids (or offers) results in
crossed boundary constraints. The fifth logic 214 may then cause
the processor 202 to switch to an alternative technique based on a
metric other than the bid-offer values of the spread instrument. In
such cases, the fourth logic 212 may then be further executable by
the processor 202 to calculate the settlement price for the
constituent contract based on the other metric. For example, trade
data for the constituent market, or another market (e.g., a
preceding month contract or other similar contract) may be used. A
switch to a different technique may be useful in certain market
conditions, such as when each spread instrument market is one-sided
in the same manner (e.g., when the spread markets are all "bid
only" markets or are all "ask only" markets), which would lead to
only an upper bound or only a lower bound.
[0067] The fifth logic 214 may be executable by the processor 214
to configure the settlement price determination at other times. For
instance, the configuration may involve an initial election as to
whether to determine the settlement price of the constituent
contract based on the market data indicative of the bid-offer
values for the plurality of spread instruments or based on trade
data indicative of trades involving the constituent contract or
another month contract.
[0068] The embodiment of FIG. 2 also includes sixth logic 216
stored in the memory 204 and executable by the processor 202 to
cause the processor 202 to determine a settlement price of an
active contract of the spread instruments. The active contract may
be settled in accordance with the trade data in the outright market
for the active contract. For example, the trade data may be
processed in accordance with a VWAP procedure to determine the
settlement price. Other procedures may be used. For example, the
midpoint of the current bid/ask market, the midpoint of the low bid
and the high ask of the closing range, or the midpoint of the high
bid and the low ask of the closing range, may be used. If there is
insufficient trade data for the active contract, the sixth logic
216 may cause the processor 202 to rely on the settlement price
determined via the boundary constraint-based procedure. The
boundary constraint-based procedure may thus be iteratively
implemented until the constituent contracts are settled.
[0069] The above-described logic may be arranged in any number of
modules or other logic units. For example, the fifth logic 214 may
be integrated with the fourth logic 212 to any desired extent. The
sixth logic 216 and the first logic 206 may also be integrated to
any desired extent. Fewer, alternative, or additional logic units
may be included.
[0070] Referring to FIG. 3, a computer-implemented method is
configured in accordance with one embodiment to determine a
settlement price for a constituent contract of a plurality of
spread instruments. The computer-implemented method may be
implemented to any desired extent by the system 200 of FIG. 2, the
system described in connection with FIG. 4, the processor 202 (FIG.
2), and/or any other processor. In some cases, the method is
implemented by an exchange. Alternatively, the method is
implemented by a market participant or other entity for which the
margin requirement may be representative of a value at risk (or
potential value at risk).
[0071] The computer-implemented method may begin with the reception
(block 300) of market data indicative of bid-offer values for the
plurality of spread instruments. Trade data indicative of recent
trades executed in one or more markets may also be obtained. For
example, the trade data may be indicative of the trades for the
active contracts of the spread instruments. Trade data for the
deferred month or other contract to be settled may also be
obtained, if available. Trade data for the spread instrument may
also be obtained, if available. The trade data may be recent (e.g.,
within a predetermined window of time, such as a last minute, at
the end of the trading session and/or before the predetermined
window).
[0072] In the embodiment of FIG. 3, the active contracts of the
spread instruments, such as the lead month contracts, are settled
(block 302) using the trade data. The settlement prices of the
active contracts may be determined through a VWAP or other
computation. Alternatively or additionally, one or more of the
active contracts are settled through previous iterations of the
boundary constraint-based procedure. The active contracts may thus
be settled based on market data in some cases. Each active contract
may be settled using a settlement procedure appropriate for the
trade and/or market data available.
[0073] The availability, quality, and other characteristics of the
trade data and market data for the other constituent contract
(e.g., the deferred month contract) of the spread instruments are
evaluated in a decision block 304. In this example, the evaluation
of the trade and market data supports a determination of whether
there is a preference to base the settlement price on market data
or trade data. For instance, if trade data in the outright market
for the constituent contract is available (and, e.g., sufficiently
current), then the contract may be settled based on such trade
data. In this example, the VWAP or other metric for the trade data
is computed (block 306) and the settlement price is computed (block
308) based on the metric. The one or more criteria by which the
trade data is deemed qualified for use in settling the contract may
vary.
[0074] If trade data is not available or otherwise insufficient or
inadequate, then control passes to a block 310 for implementation
of the boundary constraint-based settlement procedure. Synthetic
market data is generated for the constituent contract based on the
market data (e.g., bid-offer values) for the spread instrument and
based on a respective settlement price for an active contract of
each spread instrument. As shown in the examples described below,
the synthetic market data may be generated by, for each spread
instrument, subtracting the bid-offer values from the respective
settlement price for the active contract. The settlement prices for
the active contracts may be determined previously (block 302) or
provided via another component of the exchange (e.g., the trade
database 108 (FIG. 2)).
[0075] Boundary constraints on the settlement price for the
constituent contract are then determined (block 312) based on the
synthetic market data. The best bid and the best offer in the
synthetic market data may be selected to determine the highest
lower bound and the lowest upper bound on the settlement price.
[0076] The boundary constraints may then be evaluated in a decision
block 314 to determine whether the lower bound and the upper bound
cross. If the lower bound does not exceed the upper bound (i.e.,
the bounds do not cross), then control passes to a block 316 in
which the average or midpoint of the bounds is calculated and used
as the settlement price for the constituent contract. The
settlement price may be computed based on the boundary constraints
in other manners, including, for instance, a weighted average or
other computation that incorporates data into the computation other
than the boundary constraints (e.g., trade data in the outright
market for the constituent market).
[0077] If the boundary constraints cross, then control passes to a
block 318 in which the spread markets from which the bounds
originated are evaluated. The bound that originated from the wider
of the two markets is discarded. The synthetic market data for that
market is no longer used in the boundary constraint determination.
In some cases, the spread market is disqualified from only the
upper or lower bound determination that led to the crossed boundary
constraints. In other cases, the spread market is disqualified from
both bound determinations. If the markets are of equal width, then
both bounds may be discarded.
[0078] In the embodiment of FIG. 3, the synthetic market data is
evaluated in a decision block 320 to determine whether synthetic
bids or offers remain in the synthetic market data after the
discarding of the bound. If the sets of synthetic bids (or offers)
are not empty, then control returns to the block 312 for another
iteration of the boundary constraint determination.
[0079] If the last synthetic bid (or offer) has been discarded,
then control passes to a block 322 in which a preference to use the
market data to settle the constituent contract is removed. The
settlement price may then be determined based on a metric other
than the bid-offer values of the spread instruments. For example, a
flag may be set (or removed) to re-configure the method to use the
trade data available instead of the market data. In another
example, the net change of a contract that preceded the contract to
be settled in the settlement order may be used. Implementation of
the decision block 304 may then lead to computation of the VWAP of
the trade data (or other metric based on the trade data) in the
block 306 for use in the settlement determination. The metric may
involve or otherwise include trade data associated with another
contract than the constituent contract. For example, the settlement
price may be inferred or calculated based on trade data for a
previous month or other contract similar to the contract to be
settled.
[0080] Referring to FIG. 4, an illustrative embodiment of a general
computer system 400 is shown. The computer system 400 can include a
set of instructions that can be executed to cause the computer
system 400 to perform any one or more of the methods or computer
based functions disclosed herein. The computer system 400 may
operate as a standalone device or may be connected, e.g., using a
network, to other computer systems or peripheral devices. Any of
the components discussed above may be a computer system 400 or a
component in the computer system 400. The computer system 400 may
implement a match engine on behalf of an exchange, such as the
Chicago Mercantile Exchange, of which the disclosed embodiments are
a component thereof.
[0081] In a networked deployment, the computer system 400 may
operate in the capacity of a server or as a client user computer in
a client-server user network environment, or as a peer computer
system in a peer-to-peer (or distributed) network environment. The
computer system 400 can also be implemented as or incorporated into
various devices, such as a personal computer (PC), a tablet PC, a
set-top box (STB), a personal digital assistant (PDA), a mobile
device, a palmtop computer, a laptop computer, a desktop computer,
a communications device, a wireless telephone, a land-line
telephone, a control system, a camera, a scanner, a facsimile
machine, a printer, a pager, a personal trusted device, a web
appliance, a network router, switch or bridge, or any other machine
capable of executing a set of instructions (sequential or
otherwise) that specify actions to be taken by that machine. In a
particular embodiment, the computer system 400 can be implemented
using electronic devices that provide voice, video or data
communication. Further, while a single computer system 400 is
illustrated, the term "system" shall also be taken to include any
collection of systems or sub-systems that individually or jointly
execute a set, or multiple sets, of instructions to perform one or
more computer functions.
[0082] As illustrated in FIG. 4, the computer system 400 may
include a processor 402, e.g., a central processing unit (CPU), a
graphics processing unit (GPU), or both. The processor 402 may be a
component in a variety of systems. For example, the processor 402
may be part of a standard personal computer or a workstation. The
processor 402 may be one or more general processors, digital signal
processors, application specific integrated circuits, field
programmable gate arrays, servers, networks, digital circuits,
analog circuits, combinations thereof, or other now known or later
developed devices for analyzing and processing data. The processor
402 may implement a software program, such as code generated
manually (i.e., programmed).
[0083] The computer system 400 may include a memory 404 that can
communicate with a drive unit 406 and other components of the
system 400 via a bus 408. The memory 404 may be a main memory, a
static memory, or a dynamic memory. The memory 404 may include, but
is not limited to computer readable storage media such as various
types of volatile and non-volatile storage media, including but not
limited to random access memory, read-only memory, programmable
read-only memory, electrically programmable read-only memory,
electrically erasable read-only memory, flash memory, magnetic tape
or disk, optical media and the like. In one embodiment, the memory
404 includes a cache or random access memory for the processor 402.
In alternative embodiments, the memory 404 is separate from the
processor 402, such as a cache memory of a processor, the system
memory, or other memory. The memory 404 may be an external storage
device or database for storing data. Examples include a hard drive,
compact disc ("CD"), digital video disc ("DVD"), memory card,
memory stick, floppy disc, universal serial bus ("USB") memory
device, or any other device operative to store data.
[0084] The memory 404 is operable to store instructions 410
executable by the processor 402. The functions, acts or tasks
illustrated in the figures or described herein may be performed by
the programmed processor 402 executing the instructions 410 stored
in the memory 404. The instructions 410 may be loaded or accessed
from a computer-readable storage medium 412 in the drive unit 406
or other data storage device. The functions, acts or tasks are
independent of the particular type of instructions set, storage
media, processor or processing strategy and may be performed by
software, hardware, integrated circuits, firm-ware, micro-code and
the like, operating alone or in combination. Likewise, processing
strategies may include multiprocessing, multitasking, parallel
processing and the like.
[0085] As shown, the computer system 400 may further include a
display unit 414, such as a liquid crystal display (LCD), an
organic light emitting diode (OLED), a flat panel display, a solid
state display, a cathode ray tube (CRT), a projector, a printer or
other now known or later developed display device for outputting
determined information. The display 414 may act as an interface for
the user to see the functioning of the processor 402, or
specifically as an interface with the software stored in the memory
404 or in the drive unit 406.
[0086] Additionally, the computer system 400 may include an input
device 416 configured to allow a user to interact with any of the
components of system 400. The input device 416 may be a number pad,
a keyboard, or a cursor control device, such as a mouse, or a
joystick, touch screen display, remote control or any other device
operative to interact with the system 400.
[0087] In a particular embodiment, as depicted in FIG. 4, the
computer system 400 may also include an optical or other disk drive
unit as the drive unit 406. The disk drive unit 406 may include the
computer-readable storage medium 412 in which one or more sets of
instructions 410, e.g. software, can be embedded. Further, the
instructions 410 may embody one or more of the methods or logic as
described herein. In a particular embodiment, the instructions 410
may reside completely, or at least partially, within the memory 404
and/or within the processor 402 during execution by the computer
system 400. The memory 404 and the processor 402 also may include
computer-readable storage media as discussed above.
[0088] The present disclosure contemplates a computer-readable
medium that includes instructions 410 or receives and executes
instructions 410 responsive to a propagated signal, which may be
received via a communication interface 418. The system 400 may be
connected to a network 420 to communicate voice, video, audio,
images or any other data over the network 420. Further, the
instructions 412 may be transmitted or received over the network
420 via a communication interface 418. The communication interface
418 may be a part of the processor 402 or may be a separate
component. The communication interface 418 may be created in
software or may be a physical connection in hardware. The
communication interface 418 is configured to connect with a network
420, external media, the display 414, or any other components in
system 400, or combinations thereof. The connection with the
network 420 may be a physical connection, such as a wired Ethernet
connection or may be established wirelessly as discussed below.
Likewise, the additional connections with other components of the
system 400 may be physical connections or may be established
wirelessly.
[0089] The network 420 may include wired networks, wireless
networks, or combinations thereof. The wireless network may be a
cellular telephone network, an 802.11, 802.16, 802.20, or WiMax
network. Further, the network 420 may be a public network, such as
the Internet, a private network, such as an intranet, or
combinations thereof, and may utilize a variety of networking
protocols now available or later developed including, but not
limited to TCP/IP based networking protocols.
[0090] Embodiments of the subject matter and the functional
operations described in this specification can be implemented in
digital electronic circuitry, or in computer software, firmware, or
hardware, including the structures disclosed in this specification
and their structural equivalents, or in combinations of one or more
of them. Embodiments of the subject matter described in this
specification can be implemented as one or more computer program
products, i.e., one or more modules of computer program
instructions encoded on a computer readable medium for execution
by, or to control the operation of, data processing apparatus.
While the computer-readable medium is shown to be a single medium,
the terms "computer-readable medium" and "computer-readable storage
medium" include a single medium or multiple media, such as a
centralized or distributed database, and/or associated caches and
servers that store one or more sets of instructions. The term
"computer-readable medium" shall also include any medium that is
capable of storing, encoding or carrying a set of instructions for
execution by a processor or that cause a computer system to perform
any one or more of the methods or operations disclosed herein. The
computer-readable storage medium may be or include a
machine-readable storage device, a machine-readable storage
substrate, a memory device, or a combination of one or more of
them. The term "data processing apparatus" encompasses all
apparatus, devices, and machines for processing data, including by
way of example a programmable processor, a computer, or multiple
processors or computers. The apparatus can include, in addition to
hardware, code that creates an execution environment for the
computer program in question, e.g., code that constitutes processor
firmware, a protocol stack, a database management system, an
operating system, or a combination of one or more of them.
[0091] In a particular non-limiting, exemplary embodiment, the
computer-readable medium can include a solid-state memory such as a
memory card or other package that houses one or more non-volatile
read-only memories. Further, the computer-readable medium can be a
random access memory or other volatile re-writable memory.
Additionally, the computer-readable medium can include a
magneto-optical or optical medium, such as a disk or tapes or other
storage device to capture carrier wave signals such as a signal
communicated over a transmission medium. A digital file attachment
to an e-mail or other self-contained information archive or set of
archives may be considered a distribution medium that is a tangible
storage medium. Accordingly, the disclosure is considered to
include any one or more of a computer-readable medium or a
distribution medium and other equivalents and successor media, in
which data or instructions may be stored.
[0092] In an alternative embodiment, dedicated hardware
implementations, such as application specific integrated circuits,
programmable logic arrays and other hardware devices, can be
constructed to implement one or more of the methods described
herein. Applications that may include the apparatus and systems of
various embodiments can broadly include a variety of electronic and
computer systems. One or more embodiments described herein may
implement functions using two or more specific interconnected
hardware modules or devices with related control and data signals
that can be communicated between and through the modules, or as
portions of an application-specific integrated circuit.
Accordingly, the present system encompasses software, firmware, and
hardware implementations.
[0093] In accordance with various embodiments of the present
disclosure, the methods described herein may be implemented by
software programs executable by a computer system. Further, in an
exemplary, non-limited embodiment, implementations can include
distributed processing, component/object distributed processing,
and parallel processing. Alternatively, virtual computer system
processing can be constructed to implement one or more of the
methods or functionality as described herein.
[0094] Although the present specification describes components and
functions that may be implemented in particular embodiments with
reference to particular standards and protocols, the invention is
not limited to such standards and protocols. For example, standards
for Internet and other packet switched network transmission (e.g.,
TCP/IP, UDP/IP, HTML, HTTP, HTTPS) represent examples of the state
of the art. Such standards are periodically superseded by faster or
more efficient equivalents having essentially the same functions.
Accordingly, replacement standards and protocols having the same or
similar functions as those disclosed herein are considered
equivalents thereof.
[0095] The disclosed computer programs (also known as a program,
software, software application, script, or code) can be written in
any form of programming language, including compiled or interpreted
languages. The disclosed computer programs can be deployed in any
form, including as a standalone program or as a module, component,
subroutine, or other unit suitable for use in a computing
environment. Such computer programs do not necessarily correspond
to a file in a file system. Such programs can be stored in a
portion of a file that holds other programs or data (e.g., one or
more scripts stored in a markup language document), in a single
file dedicated to the program in question, or in multiple
coordinated files (e.g., files that store one or more modules, sub
programs, or portions of code). Such computer programs can be
deployed to be executed on one computer or on multiple computers
that are located at one site or distributed across multiple sites
and interconnected by a communication network.
[0096] The processes and logic flows described in this
specification can be performed by one or more programmable
processors executing one or more computer programs to perform
functions by operating on input data and generating output. The
processes and logic flows can also be performed by, and apparatus
can also be implemented as, special purpose logic circuitry, e.g.,
an FPGA (field programmable gate array) or an ASIC (application
specific integrated circuit).
[0097] Processors suitable for the execution of a computer program
include, by way of example, both general and special purpose
microprocessors, and anyone or more processors of any kind of
digital computer. Generally, a processor may receive instructions
and data from a read only memory or a random access memory or both.
The essential elements of a computer are a processor for performing
instructions and one or more memory devices for storing
instructions and data. Generally, a computer may also include, or
be operatively coupled to receive data from or transfer data to, or
both, one or more mass storage devices for storing data, e.g.,
magnetic, magneto optical disks, or optical disks. However, a
computer need not have such devices. Moreover, a computer can be
embedded in another device, e.g., a mobile telephone, a personal
digital assistant (PDA), a mobile audio player, a Global
Positioning System (GPS) receiver, to name just a few. Computer
readable media suitable for storing computer program instructions
and data include all forms of non volatile memory, media and memory
devices, including by way of example semiconductor memory devices,
e.g., EPROM, EEPROM, and flash memory devices; magnetic disks,
e.g., internal hard disks or removable disks; magneto optical
disks; and CD ROM and DVD-ROM disks. The processor and the memory
can be supplemented by, or incorporated in, special purpose logic
circuitry.
[0098] To provide for interaction with a user, embodiments of the
subject matter described in this specification can be implemented
on a device having a display, e.g., a CRT (cathode ray tube) or LCD
(liquid crystal display) monitor, for displaying information to the
user and a keyboard and a pointing device, e.g., a mouse or a
trackball, by which the user can provide input to the computer.
Other kinds of devices can be used to provide for interaction with
a user as well; for example, feedback provided to the user can be
any form of sensory feedback, e.g., visual feedback, auditory
feedback, or tactile feedback; and input from the user can be
received in any form, including acoustic, speech, or tactile
input.
[0099] Embodiments of the subject matter described in this
specification can be implemented in a computing system that
includes a back end component, e.g., as a data server, or that
includes a middleware component, e.g., an application server, or
that includes a front end component, e.g., a client computer having
a graphical user interface or a Web browser through which a user
can interact with an implementation of the subject matter described
in this specification, or any combination of one or more such back
end, middleware, or front end components. The components of the
system can be interconnected by any form or medium of digital data
communication, e.g., a communication network. Examples of
communication networks include a local area network ("LAN") and a
wide area network ("WAN"), e.g., the Internet.
[0100] The computing system can include clients and servers. A
client and server are generally remote from each other and
typically interact through a communication network. The
relationship of client and server arises by virtue of computer
programs running on the respective computers and having a
client-server relationship to each other.
[0101] Further details regarding boundary constraint-based
settlement technique of the disclosed embodiments are set forth
below in connection with several examples.
[0102] FIG. 5A depicts a potential problem with non-boundary
constraint-based settlement. In this example, the midpoints of the
spread markets are used to derive a deferred month settlement. The
example shows how the settlement price can be distorted by an
illiquid and wide market. In this case, the corn U3/K4 (September
2003/May 2014) market is the widest of the markets having the K4
contract to be settled. The U3/K4 spread instrument may not be of
as much interest to the market participants as the other two spread
instruments having the K4 contract, the corn Z3/K4 (December
2013/May 2014) and H4/K4 (March 2014/May 2014) instruments in this
example. In the midpoint-based approach, the midpoint of each
spread market is computed and used to calculate an implied value
for the contract to be settled. The median or average of the
midpoints is then calculated to settle the K4 contract. In this
example, the median of the midpoints (e.g., 604.5, 604, 604.5) is
604.5. With that settlement price for the K4 contract, the imputed
values of the spread instruments are 5, -17, and -7.25. The problem
is presented in connection with the value (-17) for the Z3/K4
spread instrument, which lies outside of the posted bid-offer
values (-16.75, -16.25) for the spread instrument.
[0103] One alternative to the midpoint-based approach would be to
only use the midpoint of the tightest bid/ask spread markets to
settle the constituent contract. In some cases, however, completely
disregarding a market due solely to its width may lead to other
inaccuracies or issues. For example, if two spread markets have
identical width, there may be difficulty in deciding which to use.
Additionally, using the tightest market may not guarantee that a
wider market will not be violated. There may be an appropriate
settlement value that does not violate any markets. Moreover, the
midpoint-based approach may nonetheless still result in settlement
values that impute a value of the spread instrument outside of the
posted bid/ask market.
[0104] FIG. 5B depicts the application of one embodiment of the
boundary constraint-based approach to the spread instrument data
processed in FIG. 5A. In the boundary constraint-based approach,
all spread bid/ask information is used to create synthetic bid/ask
markets in the contract to be settled. For example, the current bid
(3.5) and ask (6.5) values for the U3/K4 spread instrument are
subtracted from the settlement price for U3, the active contract or
first leg (609.5). The subtractions provide a lower bound (603) and
an upper bound (606) for the price of the constituent contract to
be settled. Lower and upper bounds are computed for each of the
spread instruments, creating a set of lower bounds (603, 603.75,
604.25) and a set of upper of bounds (606, 604.25, 604.5). In other
embodiments, the actual bid and ask data in the outright contract
(K4) to be settled may be added to the two sets to further define
the synthetic bid/ask markets.
[0105] The best (highest) bid is selected from the set of lower
bounds (604.25), and the best (lowest) offer is selected from the
set of upper bounds (also 604.25). The midpoint or average of these
two values may then be calculated to provide the settlement price
for the K4 contract. The settlement price (604.25) imputes a value
of each spread instrument that does not fall outside of any posted
bid/ask markets. The settlement price will not impute a value of
one of the spread instruments outside of the posted bid/ask values
provided that the lower bound and upper bound do not cross.
[0106] FIG. 6A provides an example of the application of one
embodiment of the boundary constraint-based technique to market
data that presents bounds that cross. The synthetic market data is
generated for the deferred month contract (corn July 2015, or N5)
of three spread instruments. The sets of lower and upper bounds are
evaluated to select the best lower bound (585.25) and the best
upper bound (584.5). Because the bounds cross, the midpoint or
average of the bounds (585) leads to two of the imputed values of
the spread instruments falling outside of the posted bid/ask market
values, as shown in the corn May 2015/July 2015 (K5/N5) instrument
and the corn December 2014/July 2015 (Z4/N5) instrument. One of the
violated markets is a relatively tight market that may be
considered by the market participants to be more important or
valuable.
[0107] As shown in FIG. 6B, the boundary constraints are adjusted
to address this situation. The width of the bid/ask markets from
which the two bounds originated are assessed. The lower bound
originated from the synthetic market data based on the Z4/N5 spread
instrument, which has a width of abs(-13.25-(-11.75)) or 1.5. The
upper bound originated from the synthetic market data based on the
K5/N5 spread instrument, which has a width of abs(-7.25-9.25) or
16.5. The upper bound originated from the wider market, and is
accordingly discarded from consideration.
[0108] With one of the upper bounds discarded from the set of upper
bounds, a new best upper bound is determined (586.75). Because this
bound does not cross with the retained lower bound, the average or
midpoint of the two bounds may be calculated (586) to determine the
settlement price. If the new boundary constraints cross, the
adjustment is repeated until boundary constraints are found that do
not cross. As shown in FIG. 6B, only the wide bid/ask market
remains violated by the new settlement price.
[0109] The illustrations of the embodiments described herein are
intended to provide a general understanding of the structure of the
various embodiments. The illustrations are not intended to serve as
a complete description of all of the elements and features of
apparatus and systems that utilize the structures or methods
described herein. Many other embodiments may be apparent to those
of skill in the art upon reviewing the disclosure. Other
embodiments may be utilized and derived from the disclosure, such
that structural and logical substitutions and changes may be made
without departing from the scope of the disclosure. Additionally,
the illustrations are merely representational and may not be drawn
to scale. Certain proportions within the illustrations may be
exaggerated, while other proportions may be minimized. Accordingly,
the disclosure and the figures are to be regarded as illustrative
rather than restrictive.
[0110] While this specification contains many specifics, these
should not be construed as limitations on the scope of the
invention or of what may be claimed, but rather as descriptions of
features specific to particular embodiments of the invention.
Certain features that are described in this specification in the
context of separate embodiments can also be implemented in
combination in a single embodiment. Conversely, various features
that are described in the context of a single embodiment can also
be implemented in multiple embodiments separately or in any
suitable sub-combination. Moreover, although features may be
described above as acting in certain combinations and even
initially claimed as such, one or more features from a claimed
combination can in some cases be excised from the combination, and
the claimed combination may be directed to a sub-combination or
variation of a sub-combination.
[0111] Similarly, while operations are depicted in the drawings and
described herein in a particular order, this should not be
understood as requiring that such operations be performed in the
particular order shown or in sequential order, or that all
illustrated operations be performed, to achieve desirable results.
In certain circumstances, multitasking and parallel processing may
be advantageous. Moreover, the separation of various system
components in the embodiments described above should not be
understood as requiring such separation in all embodiments, and it
should be understood that the described program components and
systems can generally be integrated together in a single software
product or packaged into multiple software products.
[0112] One or more embodiments of the disclosure may be referred to
herein, individually and/or collectively, by the term "invention"
merely for convenience and without intending to voluntarily limit
the scope of this application to any particular invention or
inventive concept. Moreover, although specific embodiments have
been illustrated and described herein, it should be appreciated
that any subsequent arrangement designed to achieve the same or
similar purpose may be substituted for the specific embodiments
shown. This disclosure is intended to cover any and all subsequent
adaptations or variations of various embodiments. Combinations of
the above embodiments, and other embodiments not specifically
described herein, will be apparent to those of skill in the art
upon reviewing the description.
[0113] The Abstract of the Disclosure is provided to comply with 37
C.F.R. .sctn.1.72(b) and is submitted with the understanding that
it will not be used to interpret or limit the scope or meaning of
the claims. In addition, in the foregoing Detailed Description,
various features may be grouped together or described in a single
embodiment for the purpose of streamlining the disclosure. This
disclosure is not to be interpreted as reflecting an intention that
the claimed embodiments require more features than are expressly
recited in each claim. Rather, as the following claims reflect,
inventive subject matter may be directed to less than all of the
features of any of the disclosed embodiments. Thus, the following
claims are incorporated into the Detailed Description, with each
claim standing on its own as defining separately claimed subject
matter.
[0114] It is therefore intended that the foregoing detailed
description be regarded as illustrative rather than limiting, and
that it be understood that it is the following claims, including
all equivalents, that are intended to define the spirit and scope
of this invention.
* * * * *